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Workplace fraud is often hard to spot

By Sarah Townsend, Senior Solicitor

First published in the NBR, 9 May 2008

We would all like to think that our staff won’t steal from us.  It happens to other organisations – but not in your workplace, right? Wrong.   

Earlier this year, the issue of employee theft came back into the limelight when it was reported that a woman had been convicted of stealing $220,000 from her employer over 11 months, spending it on designer goods and jewellery.  That level of dishonesty begs the question, how do you steal that kind of money from your employer and more importantly, how did it take them so long to notice?

Statistics on workplace theft and fraud are hard to come by, because so much of it never even gets uncovered, let alone reported. However, employee theft is more common than you might think.  According to a 2006 KPMG survey, nearly half of businesses surveyed had been the victim of fraud, with over 13% reporting frauds exceeding $200,000. 

In most cases, the money lost or stolen is never fully recovered.  According to the survey, fraud often takes over a year to be detected by an employer.  The Serious Fraud Office website also indicates that a surprisingly high number of prosecutions involving employee fraud and theft are already before the courts in 2008.  

Of course, there are more common examples of employee fraud in the workplace than stealing $220,000 from under your employer’s nose.   Common examples of theft involve false invoicing and theft of petty cash and inventory.   Company goods, whether it be food, alcohol, clothes or stationery are also often targeted.   Greed and opportunity appear to be the overriding motives for workplace fraud.

If you suspect employee fraud or theft in the workplace, you must ensure that you comply with employment law and that you follow the correct process in order to minimise any risk of a personal grievance being raised. A successful personal grievance could see you paying your employee compensation for unjustified dismissal and, in some cases, even reinstating them. 

The first step in carrying out a fair process is to thoroughly investigate the situation. Accusing an employee of theft is one of the most serious allegations you can level at them, so make sure that you have good grounds to do so. Seek help and advice if necessary.  If, after investigation, your suspicions appear to be well founded, you need to go through a full and fair disciplinary process with your employee, providing them with all the evidence you have gathered and giving them the opportunity to provide an explanation into their behaviour before you make any decision about whether or not to dismiss them.   

It is tempting for employers to want to report the theft to the police, before going through a disciplinary process.  In practice this can delay your ability to deal with the issue.  An employee, who is being criminally charged or prosecuted for theft, may exercise their right to silence during an employment investigation and you may be forced to delay taking employment action (like dismissing them), pending completion of a criminal trial. This can take months or, in some cases, years.    In the meantime, the employee either continues to work or is suspended, generally on full pay.   For this reason, it is often better to wait until your criminal process is complete before informing the police. 

So, how do you spot a fraudster on your payroll, and what steps can you take to minimise your risk of it happening?

Spotting a fraudster can be difficult.  It is often the colleague, who is known to be helpful, polite and inconspicuous.  Often, fraudsters have been employed for a number of years, are a trusted member of staff, hardworking and in a position of control over accounts payable or payroll.   Common red flags include employees with spending habits disproportionate to their income;  employees refusing to take leave, or retaining control over key accounting  payroll functions, even when off sick or on leave.  Employers often mistake this for hard work and dedication to the job. 

Steps you can take to minimise risk of fraud in your workplace include:

·      Conduct thorough background checks on job applicants.  Fraudsters can often be very charming and convincing at interview.  However, the chances are that a fraudster will have stolen from their previous employer as well.  Make sure you carefully check references and gaps in employment and conduct any other background checks you believe may be necessary. 

·      Set up and maintain strong internal controls, particularly where finances are concerned.  Separate accounting duties.  Ensure two signatories authorise payments, and when authorising payments of signing cheques, ensure that all relevant information has been seen and that there is no room to alter the amounts or to add in additional words or figures. 

·      Educate employees about fraud, fraud awareness and ethics, and, have a clear system to enable employees to report suspected fraud. 

·      Perform regular, and irregular, audits. 

If you suspect employee theft in your workplace, seek professional assistance in dealing with the issue promptly and fairly, and introduce steps to minimise the risk of it happening again.